June 19 (Bloomberg) -- Fibria Celulose SA and Suzano Papel
& Celulose SA, Brazil’s biggest pulp makers, had their earnings
estimates cut by more than any other company in the country as
the industry adds factories amid waning overseas demand.

Analysts more than doubled Fibria’s estimated second-quarter loss to 1.14 real per share and increased the forecast
for Suzano’s loss sixfold to about 30 centavos in the past three
months, data compiled by Bloomberg show.

Slowing growth in China and Europe, the two main markets
for the paper-making material, is crimping the need for pulp as
new plants prepare to start operations from Uruguay to Russia.
Fibria and Suzano are raising a combined $1.5 billion in stock
sales this quarter to reduce debt as Goldman Sachs Group Inc.
forecasts average pulp prices will drop 5 percent this year.

“On the demand side, the scenario is gloomy as exports
from Brazil drop and there are no concrete signs of a recovery
in Europe,” Daniella Maia, an equity analyst at Ativa
Corretora, who has a hold recommendation for both stocks, said
by telephone from Rio de Janeiro. “The outlook is negative for
pulp prices this year and next.”

Sao Paulo-based Fibria, the world’s largest pulp producer,
rose 4.5 percent to 14.21 reais at 11:05 a.m. in Sao Paulo and
was up 2.4 percent for the year. Suzano, based in Salvador,
Brazil, climbed 4.8 percent to 4.82 reais, paring its decline
this year to 29 percent. Klabin SA, the country’s biggest paper
maker, increased 0.7 percent to 8.98 reais, extending its gain
this year to 12 percent. Brazil’s benchmark Bovespa stock index
rose 1.3 percent and was up 0.2 percent for the year.

Officials at Fibria and Suzano, who can’t be named because
of company policy, declined to comment. An official at an
outside firm representing Klabin declined to comment.

Chinese Growth

Fibria derives 91 percent of its sales from exports and
Suzano 53 percent. They sell mainly to China and Europe, which
buy a combined 70 percent of Brazil’s pulp.

China may grow at the slowest pace in 13 years, Credit
Suisse Group AG said June 14. The European Union is set to
contract 0.4 percent this year as the debt crisis in the 17-nation euro economy worsens, Fitch Ratings said last week.

Klabin, which focuses on processing pulp into paper for the
Brazilian market instead of exporting the raw material, had its
average profit estimate quadrupled by analysts in the past three
months to 8 centavos. The Sao Paulo-based company has benefited
from growing demand in Brazil, the world’s second-largest
emerging economy, after more than 35 million people were pulled
out of poverty in the past decade.

Pulp exports from Brazil fell 4.7 percent in May from a
year earlier and are down 0.3 percent this year through May,
according to the Trade Ministry.

Pulp Prices

The average annual pulp price will drop for a second year
as demand weakens, Goldman Sachs analyst Marcelo Aguiar said in
a May 21 report. The average for this year will fall to $771 per
metric ton from $812 last year and $848 in 2010. Aguiar declined
to comment for this story.

The BHKP Global Pulp Price Index, which slumped 23 percent
last year, has rebounded 21 percent this year after paper makers
built up stockpiles in past months.

The rise is unsustainable as producers increase supply amid
slowing consumption growth in China and declining sales in
Europe, according to Banco Santander SA. Prices measured by the
index probably will slide 6.2 percent to $737.5 per ton at the
end of this year from $786.03 last week, Santander analyst
Rodrigo Ordonez said by telephone yesterday from Santiago.

“The slowdown in China and the European crisis seem to
reflect on the pulp market,” Maia said. “A cycle of capacity
increase starts at the end of this year.”

Four plants are scheduled to start producing a combined 4.8
million metric tons of pulp between this year and next.

New Capacity

International Paper Co. is slated to add 490,000 tons of
capacity at a plant in Russia as early as this year. Eldorado
Celulose & Papel SA will start a 1.5 million-ton unit in Brazil
in November, while Suzano is expanding output in the country by
1.5 million tons in 2013. Stora Enso Oyj and Celulosa Arauco &
Constitucion SA will add 1.3 million tons in Uruguay next year.

Fibria and Suzano are raising funds in share sales after
debt ballooned in past years. Fibria sold 1.44 billion reais
($768 million) of stock in April and Suzano is raising about
1.45 billion reais in an offering to be priced June 27.

The cash will help the two companies weather declining
prices, Barbara Mattos, an analyst at Moody’s Investors Service
said in a June 5 telephone interview from Sao Paulo.

“The timing of Suzano’s and Fibria’s share sales couldn’t
be better,” Mattos said. “It’s a nice financial cushion if you
consider that pulp prices aren’t going to help them generate
enough cash to support debt reduction and future investments.”

Rising Debt

Suzano’s net debt jumped to a nine-year high of 4.8 times
earnings before items at the end of the first quarter, while
Fibria’s ratio reached a two-year high of 4.6, according to data
compiled by Bloomberg.

Fibria posted a loss of 11.2 million reais in the first
quarter, compared with a 387 million-real profit a year earlier.
Suzano’s net income dropped 50 percent to 71.8 million reais,
the data show.

Average prices for Brazilian pulp sold in Asia slumped 18
percent from a year earlier in the first quarter to $613.3 per
ton, Fibria said on May 14.

“I don’t see a major improvement in prices coming in the
short term,” Ativa’s Maia said. “The pulp market has seen
better days.”